BoC holds rate at 2.25% amid global tensions and economic uncertainty

Amid geopolitical tensions and rising oil prices, the Bank of Canada (BoC) is holding its key overnight interest rate at 2.25%, which has remained unchanged since October 2025. 

For the housing market, the rate hold keeps variable mortgage rates stable, but rising fixed rates may make home-buying decisions and renewing existing mortgages trickier.

As of February, inflation is at 1.8%, which is below the Bank’s 2% target. At the same time, the war in the Middle East has added upward pressure on energy prices, complicating the Bank’s efforts to balance inflation control with economic growth.

“In addition to energy supply disruptions, transportation bottlenecks stemming from the effective closure of the Strait of Hormuz could impact the supply of other commodities, such as fertilizer,” said Governor Tiff Macklem during the morning announcement on March 18. 

“As the outlook evolves, we stand ready to respond as needed,” he added. 

For buyers and homeowners, the current environment demands careful financial planning, as fixed mortgage rates rise and affordability remains a key concern.

Here’s what you need to know.

How rising oil prices are shaping inflation expectations

Higher oil prices following the war in Iran have added a new inflation risk for the Bank of Canada, but they are not expected to change the central bank’s near‑term plan.

Shelly Kaushik, senior economist and vice president of economics at the Bank of Montreal (BMO), says the current rate of 2.25% was deemed by the Bank as supportive of the economy without risking inflation.

“Even before the start of the Iran conflict, the Bank was very comfortable staying on hold, as it describes the current rate as slightly stimulative to the economy,” says Kaushik. “Given upside inflation pressures, there’s little else the Bank believed it could do to support the economy while maintaining inflation at target.”

The rise in oil prices has also weakened the case for additional rate cuts, even as the economy continues to show signs of slower growth. 

“Now, it seems as if the argument to cut rates (due to soft inflation and economic data) has lessened because of the oil price spike,” she adds.

Currently, Kaushik explains; the broader economy remains too fragile for policymakers to respond with rate hikes. While energy costs have spiked, recent job data have been weak, growth sluggish, and uncertainty around Canada‑U.S. trade talks continues to weigh on confidence.

For now, that combination leaves the Bank watching whether oil‑related price pressures spread beyond energy, while keeping rates steady as the economy adjusts.

Read more: Bank of Canada holds the policy rate steady as trade uncertainty lingers

Labour market weakens as economic uncertainty persists 

Canada’s labour market weakened in February, adding to the reasons the Bank of Canada kept interest rates on hold.

Statistics Canada reported that the economy lost 84,000 jobs during the month, while the unemployment rate rose to 6.7%. 

Job losses were spread across the economy, with declines in construction, manufacturing, wholesale and retail trade, and several service industries. Most of the losses were in full‑time and private‑sector work.

Kaushik says the numbers confirm that the economy is losing momentum, particularly after what she calls a "disappointing January".

“We expect the labour market to deteriorate a touch further, but a shrinking labour force will offset the increase in the unemployment rate,” she says.

A weaker job market reduces the urgency for the Bank to respond to inflation by raising rates. Slower hiring and job losses tend to cool wage growth and consumer spending, easing pressure on prices.

Trade uncertainty also keeps businesses cautious about hiring, Kaushik adds. This is likely to continue as U.S. tariff threats and negotiations over the Canada-U.S.-Mexico Agreement remain unresolved.

“Overall, the labour market looks to remain soft as long as trade uncertainty remains in focus,” Kaushik says. 

So, even as higher oil prices raise inflation fears, weakening employment and slowing growth give the Bank little reason to tighten policy in the near term.

Conflict in the Middle East is likely to push fixed mortgage rates higher 

Since the conflict began, fixed mortgage rates have increased by roughly five to 15 basis points, pushing five‑year fixed offers into the low‑ to mid‑4% range. Variable rates have remained more stable, generally sitting in the high‑3% to mid‑4% range.

“Today’s rate hold isn’t likely to move the needle on the housing market in any significant way,” says Victor Tran, Rates.ca mortgage and real estate expert. “While the hold means stability for variable mortgage rates, fixed mortgage rates are on the rise, which will affect renewals this year.”

Tran says the gap between fixed and variable rates could grow if the conflict continues. Geopolitical conflict can drive volatility in global bond markets, through higher oil prices and inflation fears, which push up government bond yields that fixed mortgage rates are based on.

“The current conflict in the Middle East is likely to push fixed mortgage rates higher the longer it goes on,” he says, adding that prolonged uncertainty “likely mean[s] another slow spring housing market.”

Read next: Are condos still a good investment? 35% of Canadians say no—up from 30% in March

Renewals continue as buyers adjust to today’s rate environment

Mortgage renewals are still moving ahead—often at much higher costs than before. 

“Many that purchased with rock‑bottom interest rates in 2021 [are] renewing in a substantially higher rate environment,” Tran says.

Tran advises homeowners to reflect and plan ahead when they’re considering renewing their mortgage.

“Potential job losses, inflationary pressures, a slow housing market, high grocery prices - these are all reasons to consider preparing avenues to tap into a home’s liquidity in case of emergency over the next year,” he says. 

“Homeowners that are strapped for cash may want to consider refinancing to consolidate debt, while others may want to consider opening a home equity line of credit or reevaluating amortization and term lengths to create some financial breathing room in case of future challenges,” he adds.

Related: Ask the mortgage expert: How to buy a home in 2026, between budgets, builders, and opportunities

What buyer activity and listings show heading into spring

Overall national homes sales edged down in February from the previous month. The benchmark home price fell 4.8% compared to the same time last year, according to the Canadian Real Estate Association (CREA). 

New listings also declined, down 3.9 per cent in February compared to January. The sales-to-new-listings ratio narrowed, signaling softer market conditions. CREA said price declines in British Columbia, Ontario, and Alberta offset gains in other provinces.

The MLS Home Price Index shows the national benchmark home price was $661,100 last month, roughly in line with levels last seen in the spring of 2021.

“With rates unlikely to move down further, the affordability picture can only improve if prices fall or incomes rise,” says Kaushik. “As the national market continues to correct, there’s still downward pressure on prices; and in the meantime, incomes continue to rise.”

Until those forces meaningfully converge, Kaushik expects both housing demand and supply to remain in a holding pattern.

“Because those two forces take time, we’re not anticipating a meaningful recovery in the market this year. This is likely a 2027 story, at the earliest,” she says.

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